State and local governments finance public services primarily through taxes. Nationally, the two biggest taxes are the property and sales tax, which generate more than two- thirds of all state and local tax revenue. Because states rely most on sales and property taxes, and because these taxes place higher effective rates on low- and middle-income households (who spend a greater share of their incomes on housing and purchasing necessities than the wealthy), state and local tax systems are regressive. In Rhode Island, the lowest twenty percent of households pay percent of their income in state and local taxes, the.
